Brexit architect Nigel Farage says there is now an argument for a second referendum.
Jeff Spicer / Stringer

Japanese bank Nomura sees a 25% chance of a second Brexit referendum.

Were a second referendum to be called, the pound could climb as high as $1.40, it's highest level since the day before the vote.

The prospect of a second vote has come to the fore in recent days after Nigel Farage, one of the architects of Brexit, said he believed there is now an argument to say one should be held.

LONDON — The pound could climb as much as 4% to trade at 1.40 against the dollar if a second Brexit referendum is announced within the next year, analysts at Japanese bank Nomura said.

Talk of a second referendum — long favoured by Remain backers — has come to the fore in recent days after Nigel Farage, one of the architects of Brexit, said he believed there is now an argument to say one should be held.

Estimates from Nomura's UK economics team, led by George Buckley, suggest that sterling would pop up to around $1.40 (still around 5-6% lower than pre-referendum) should a second vote be announced.

"We assume that if a second referendum were to be announced, the market would conclude, like us, that ‘Remain' would have a good chance of winning," the team writes, pointing to the chart below:

Nomura

"In terms of GBP/USD we would look for a move into the 1.40s on the back of a second referendum."

Nomura's team is keen to caveat their forecast with the argument that they see just a 25% chance of a second vote, arguing that Farage's intervention hasn't "materially increased" the likelihood of one happening.

"In any event, even though we don’t think this intervention has materially increased the chances of a second referendum, it does serve to bring it into the market consciousness," the note says.

"We stick with our view from our year-ahead report in December, namely that 'While our base case is that the UK will leave the EU, we see a 25% likelihood that the UK will stay, likely via a second referendum'."